A functional dynamic framework for understanding new government-market relationships of smart energy transitions in China

Abstract

The urgency for China to attain carbon neutrality has driven the world’s largest carbon-emitting nation to seek more effective climate and energy policies. The adoption of smart grid (SG) technologies, aimed at enabling and accelerating the shift from fossil fuel-dependent energy systems to more sustainable ones, has garnered mounting policy interest in China. However, the full potential of SG development has yet to be realised amidst the ongoing electricity market reforms in the country. A key but largely unanswered question pertains to how and the extent to which the evolving dynamics between the government and the market have influenced SG advancements. This paper aims to develop and apply an integrated framework of policy mixes and functional dynamics for smart energy transitions, and apply it to reanalyse a case study of SG policy developments in China. Our study entails a synthesis of primary research findings, shedding light on how electricity market reforms create institutional contexts within which new government-market dynamics emerge and condition the progress of SGs in China. Our study reveals that the Chinese government has adopted a controlled dynamic approach to modulate the relationships between the government and the market within the power sector. This approach has both facilitated the creation of an enabling policy environment and imposed certain barriers to SG developments. The dominance of state-owned incumbents have on the one hand created state-driven market demand, reduction in technology costs and the influence of utility-led policy networks, but on the other hand, placing constraints on the growth of SG technologies. Our policy recommendations: China needs to formulate and implement SG policies which can effectively overcome key barriers which include under-developed regulatory frameworks, utilities’ disincentives to invest in renewable energy, and insufficiency in end-user engagements.